NAB on final warning for pay report

A leading proxy adviser to investors has issued a final warning to
National Australia Bank
to improve its pay disclosures or face a “no" vote on its remuneration report.

CGI Glass Lewis also criticised NAB and ANZ for offering too many short-term bonuses to their executives and wants remuneration to be based more on achieving long-term goals.

The warning comes before banks’ shareholders meet this month.

CGI Glass Lewis research director Aaron Bertinetti said you needed a “wet towel around your head" to try to comprehend NAB’s pay report.

“For a company that has the resources, it’s just so far behind the eight-ball in terms of best practice," Mr Bertinetti said. “We’ve threatened to recommend against this remuneration report in the future if they don’t improve their game."

A spokesman for NAB said remuneration reports were extremely complicated and it was constantly monitoring feedback from shareholders and endeavouring to provide as much detail and transparency as possible.

NAB’s remuneration report explains in general terms the key business drivers that chief executive
Cameron Clyne
and his executive team must address to receive short-term incentive (STI) bonuses.

These relate to financial and risk management, strategic projects and process quality, employees and culture, and customer and community.

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While acknowledging that NAB had improved its disclosure of STI performance measures, Mr Bertinetti said these were still light on specific details. “That’s a problem when banks are paying fairly substantial bonuses."

CGI Class Lewis recommended clients vote for NAB’s pay report at its annual meeting on December 13 but said the bank was on its final warning.

The NAB board recently took the rare step of clawing back bonuses awarded to the head of its beleaguered UK business, David Thorburn. It is the first time that pay experts can recall a big four bank clawing back bonuses for performance.

Options granted to Mr Clyne and other senior NAB bankers over the past few years lapsed due to performance hurdles not being met. Mr Clyne had his annual bonus slashed 40 per cent to $2.4 million in 2012.

The head of NAB’s remuneration committee,
Patricia Cross
, said in the annual report the board exercised its discretion during the year to force some executives in business segments that had not sustained performance to forfeit bonuses.

“But NAB seems to have these ongoing performance issues, with HomeSide in the United States, CDO writedowns and now the UK business," Mr Kolesnikoff said.

“Their executives still seem to be paid reasonably well, although less than ANZ and Westpac."

ANZ
also came under fire for its pay policy. Chief executive
Mike Smith
is eligible to earn a short-term bonus of up to 250 per cent of fixed remuneration, compared with 100 per cent for long-term bonuses, CGI Glass Lewis calculated.

In dollar terms, his fixed pay of $3.27 million can lead to a potential short-term bonus of more than $8 million.

CGI identified similar problems with NAB’s remuneration structure.

“There is a consistent problem of short-termism. A lot of the remuneration is based on a single year’s performance," Mr Bertinetti said.